5 Expensive Bookkeeping Mistakes Small Businesses Make (and How to Avoid Them)

Is your bookkeeping a quiet way to lose money? As a small business owner, you face numerous challenges. It's easy to put off bookkeeping, but even tiny mistakes can cause big money problems. We love helping small businesses succeed at Main Street Collective, and good financial management is the first step. Let's identify five common bookkeeping mistakes and, more importantly, discuss how to avoid them!

"Good recordkeeping is about more than numbers; it's about understanding your finances and using that knowledge to make better business decisions." - Lauren Smith, LHS Bookkeeping

1. Not doing regular reconciliations: missing out on money

The mistake was not reconciling your bank and credit card accounts every month. This implies you're not checking to see if your records reflect what's really going on with your accounts.
Why It Costs: Accounts that aren't reconciled can disguise mistakes, missed payments, or even fraud. If you pay a vendor twice or miss a customer payment, that's money that comes straight out of your wallet!
The answer is to make reconciliation a monthly task. QuickBooks and other accounting tools make this process rather easy. You could also hire LHS Bookkeeping through Main Street Collective to do this important job for you, which will give you peace of mind and make sure it is done correctly.
Tip: Set a reminder on your calendar to check your accounts every so often. Because it is, treat it like an important appointment.

2. Misclassifying Expenses: A Tax Time Nightmare

Putting expenses in the wrong category: A tax time nightmare
The mistake was putting business expenses in the wrong category. Did you accidentally put office supplies under the marketing category? These mistakes may seem small, but they may add up quickly.
Why It Costs So Much: If you misclassify your spending, your financial statements will be wrong, which makes it hard to figure out where your money is going. More importantly, they can raise red flags during tax audits, which might lead to fines and back taxes.
The answer is to know what the most prevalent types of expenses are and what they mean. Set up rules for transactions that happen on a regular basis using the functionality of your accounting software. If you're not sure, talk to an expert! LHS Bookkeeping will help you organize your chart of accounts and learn how to properly classify your expenses by giving you a one-hour consultation.
Think about this: The key to accurate financial reporting is a well-organized chart of accounts. LHS Bookkeeping can help you make one that fits your business needs.

3. Failing to Track Inventory Properly: Losing Control of Your Assets

Not keeping track of your inventory properly: losing control of your assets
The Mistake: Not keeping track of your inventory or managing it poorly. This is especially important if you sell things that are real.

Why It Costs So Much: You can't figure out your exact cost of goods sold without proper inventory data, which means your profit calculations will be wrong. If you order too much or too little, you could lose money or miss out on promotions.

The answer is to set up an inventory monitoring system, even if it's only a simple spreadsheet to start. Keep your inventory counts up to date and make sure they match your sales records. QuickBooks Online and its inventory management tools can be a good choice if you have more complicated inventory demands.

Did you know that Main Street Collective also offers Bulk Inventory Management Support? This service can help you get your inventory online quickly, with SEO optimization and pricing help to help you make the most money from day one.

4. Not Taking Depreciation Into Account: Missing Out on Tax Deductions

The Mistake: Not taking into account how much assets lose value over time. When you depreciate an asset, you spread out its cost over its useful life.
What makes it expensive: You're missing out on a big tax break if you don't take depreciation into account. This decreases your taxable income and the amount of tax you have to pay overall.
The Answer: Know which assets lose value over time (such equipment, vehicles, and buildings) and how to calculate their depreciation. You can use accounting software to figure out how much depreciation to take. But this is a field where it is really important to get professional help.
This is how you should think about it: Depreciation is like obtaining a tax break for the damage that happens to your business assets.

5. Mixing Personal and Business Finances: A Recipe for Disaster

Mixing your personal and business money is a sure way to fail.
The mistake is using the same credit cards and bank account for both personal and corporate purchases.
Why It Costs So Much: This makes it very hard to keep track of your income and expenses correctly. It makes it harder to file your taxes and could even put your legal protection as a business owner at risk.
The answer: Set up separate bank accounts and credit cards just for your business. This is not up for discussion! Take money from your business account and put it into your personal account as a salary or owner's draw.
Example from the real world: Think about how hard it would be to deduct business costs when your bank statement is full with personal excursions to the store and fun things to do. Keeping finances separate makes it easy to follow the money.

Are you ready to take charge of your books?

Don't allow these mistakes cost you money! In the long run, taking steps to improve your bookkeeping will pay off.

Main Street Collective can help in the following ways:

• LHS Bookkeeping is a trusted partner that offers a variety of services to small businesses in Mississippi:
• Cleaning up QuickBooks: Make sure your books are clean, correct, and ready for a CPA.
• One-Hour Consultations: Get expert help and advice that is tailored to you.
• Ongoing bookkeeping help: Let them handle the money while you run your business.
• New Business Start-Up Package: Comes with two hours of training and help with setup.
• Marketplace for Main Street Collective:
  Business Listing: Get your business listed in our Mississippi Business Directory online.

Get one step closer to understanding your money! Call LHS Bookkeeping today to set up a meeting and mention Main Street Collective to get a special discount.

What problems are you having with bookkeeping in your small business? Please leave your remarks below!

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What bookkeeping challenges are you facing in your small business? Share your thoughts in the comments below!